Microsoft exec tells employees in Windows and Office groups to be more cautious in hiring

Microsoft is gearing up to pursue a more conservative approach to hiring in a part of the business that includes some of its most popular products.

Rajesh Jha, executive vice president in charge of Office and part of Windows, told staffers in his group on Thursday to be more cautious when it comes to opening up new roles and to request permission from Jha's leadership team first, according to a person familiar with the matter, who was not authorized to speak about private deliberations. Bloomberg reported on the change earlier.

The move comes a month before Microsoft starts its new fiscal year, a time when the company regularly reorganizes. More broadly, Microsoft and other companies across the tech industry are recalibrating as a catastrophic first half of the year for the market nears a close and inflationary pressures continue to mount.

Facebook parent Meta, chipmaker Nvidia and social media company Snap have announced plans in recent weeks to hire less vigorously, as the Covid-19 pandemic and the war in Ukraine have added to the upward pressure on prices and dampened the outlook for the rest of the year.

When asked about the memo, a Microsoft representative sent the following statement:

"As Microsoft gets ready for the new fiscal year, it is making sure the right resources are aligned to the right opportunity. Microsoft will continue to grow headcount in the year ahead and it will add additional focus to where those resources go."

Microsoft is still focused on retaining top talent in a stiff labor market. CEO Satya Nadella announced two weeks ago that the company is increasing the amount of money available for merit increases for employees.

While Microsoft's stock has gotten hammered this year along with the rest of the market, it's held up better than companies like Alphabet, Meta Platforms and Amazon, which have greater exposure to consumer activity and spending.

However, companies reliant on business spending still face risks as clients tighten their budgets. Almost 88% of Microsoft's roughly $11 billion in quarterly Office revenue is commercial in nature, according to estimates from RBC Capital Markets. Office and Windows are still growing, but not as fast as Microsoft's Azure public cloud business, which is second to Amazon Web Services in cloud infrastructure.

Office and Windows should continue to grow in the current quarter, albeit at a slightly slower pace, Microsoft's finance chief, Amy Hood, told analysts last month.

Revenue from Windows license sales to device makers should be in the low to mid single digits in the second quarter, thanks to a PC market led by sales of commercial machines, Hood said. That would be down from 11% growth in the prior quarter.

"We expect Office 365 revenue growth to be sequentially lower by a point or two on a constant-currency basis," Hood said.

Microsoft still has room to sell clients on Office enhancements in part because the Teams chat app brought in new users during the pandemic, and Microsoft has security features that some of them may want to add. Speaking at a conference this week with Mark Murphy, an analyst at JPMorgan Securities, Jha said the company is still early its efforts to sign customers up for the more expensive E5 Office subscription tier.

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